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Bringing Macroeconomics Back into the Political Economy of Reform: the Lisbon Agenda and the ‘Fiscal Philosophy’ of EMU*
Author(s) -
MABBETT DEBORAH,
SCHELKLE WALTRAUD
Publication year - 2007
Publication title -
jcms: journal of common market studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.54
H-Index - 90
eISSN - 1468-5965
pISSN - 0021-9886
DOI - 10.1111/j.1468-5965.2007.00704.x
Subject(s) - economics , consolidation (business) , corporate governance , fiscal policy , politics , macroeconomics , economic system , economic policy , political science , finance , law
The Lisbon Strategy supports reform of Member States' tax‐benefit systems while the ‘fiscal philosophy’ of the EMU postulates that governments should allow only automatic stabilizers, built into tax‐benefit systems, to smooth aggregate income. We ask whether these two pillars of EU economic governance are compatible. By exploring how structural reforms affect fiscal stabilization, we complement a political economy literature that asks whether fiscal consolidation fosters or hinders structural reforms. Using EUROMOD, a tax‐benefit model for the EU‐15, we identify the connections between specific tax and benefit reforms and the size of the stabilizers. We conclude that Lisbon‐type reforms may worsen the stabilizing capacity of tax‐benefit systems.